NEW YORK (MONEY Magazine) - Soon after Los Angeles art directors David Hoffmann and Marcelle Gravel began dating six years ago, they started planning their escape from a frenzied urban existence.

"Everyone who works in L.A. wants to get out of L.A.," jokes Hoffmann. "Marcelle and I would be happy retiring on a beach in a Third World country with nothing but a donkey and a chicken."

An exaggeration? Sure, but the couple, both 42, would like to retire to a less expensive rural area and, perhaps, open a bed and breakfast. And they also hope to save enough to fund private college for Olivier, 4, and Chloé, 2

Where they are now

Hoffmann and Gravel, who spent years as freelancers, got a late start on retirement saving.

"It's hard to plot out finances for the future when each time you finish a job you don't know if you're going to work again," says Hoffmann. He took a staff position with a television studio in 1997, but the couple's income still varies widely.

For the past two years, Gravel has been a stay-at-home mom, and even after she returns to work in a few months, their income will range from $120,000 to $180,000, depending on her projects.

While the ups and downs have made saving tricky, Hoffmann has consistently maxed out his 401(k) contributions. With a generous company match (currently $7,200 a year), he's built up $122,000 in the account, mostly divided among three stock mutual funds.

Gravel has avoided stocks since losing $20,000 in the bear market. Other than a few dozen Starbucks shares, she keeps her $110,000 savings in money-market and savings accounts in her name.

"I feel like the money I had before marriage is mine, but I know I should do something for the long term," she says.

One option she's considering: investing more in their rapidly appreciating home. After tapping equity to finance a $78,000 addition, the couple have about 60 percent equity in their home, which is worth about $725,000. Jointly, they have saved $17,000 for college expenses, divided between California's tax-advantaged 529 plan and two savings accounts.

What they should do

Don't put more money into the house, says La Jolla, Calif. financial planner Christopher Van Slyke. While their home equity should give the couple's retirement a huge boost (as long as they move someplace cheaper), there are no guarantees that the L.A. real estate boom will last.

So when Gravel starts working again, she should fund a solo 401(k) plan. The pair haven't set a firm retirement date, but Van Slyke figures that if Gravel can save $20,000 a year while Hoffmann keeps maxing out his 401(k), they may be able to think about retiring early and heading for the country.

Van Slyke is sympathetic to Gravel's desire to keep her premarriage money separate. But he urges her to move it from low-interest accounts and to coordinate her investments with her husband's to hit a mix of 80 percent stocks and 20 percent bonds.

Since Hoffmann is far more risk-tolerant than she is, Van Slyke suggests a 100 percent equity allocation for his 401(k), divided into two of the lower-cost, best-diversified funds available within his plan. Gravel can divide her present assets into a conservative fifty-fifty stock and bond mix.

The couple should compensate for the expensive actively managed mutual funds in Hoffmann's retirement plan by sticking with low-cost Vanguard index funds for their other investments.

Finally, Van Slyke isn't a big fan of the investment strategies and management fees of 529 plans, including California's. He suggests that Hoffmann and Gravel not touch the money already in the plan, to avoid any tax liability. Then, only after they've hit their retirement savings targets, they can put future college savings into index funds.

What to sell, what to buy

SELL

1. Three stock mutual funds and one government Treasury fund in Hoffmann's 401(k) (MFS Global Equity, MFS Strategic Value, MFS Government Securities, MFS New Discovery).
2. Invest the assets currently in a money-market fund.

BUY

MFS Union Standard Fund (MUEAX) -- in the 401(k)

The MFS funds are the best offered in Hoffmann's 401(k). Balancing those actively managed funds with low-cost Vanguard index funds will keep down expenses and diversify the couple's portfolio.